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My thanks to Nowdy for sharing some of her beef pictorial collection with me. The Beef Plant appears to have morphed into a case of life imitating art imitating life etc etc etc. as Sean Carothers has taken exception to the recent rule 17 subpoena issued his construction company by Team Moultrie and has moved to quash:

By previous ex parte Motion not served upon Carothers Construction Company, Inc. (“Carothers”), the defendant, Robert L. Moultrie, moved the Court to issue a Rule 17(c) subpoena duces tecum to be served on Carothers.

Ex parte? From Team Moultrie and Folo blogging lawyer Tom Freeland who has written a good bit about the subject as it applied to the judicial bribery case? The first 10 or so pages of the accompanying memorandum of law tells us a good bit more about Carothers’ expected testimony, contains a good bit of background on the case and takes exception to what Team Carothers terms improper ex parte communications between Judge Mills and Team Moultrie:

Carothers Construction Company, Inc. was the general contractor on the beef plant project. Its contract was for approximately 16 to 18 million dollars and was with Mississippi Beef Processors, LLC. It was in two parts: (1) plant design; and, (2) construction of the processing plant.

Richard Hall had a second contract with Mississippi Beef Processors, LLC. It was also in the approximate amount of 16 to 17 million and was for the processing machinery to go in the plant.

Because of innumerable problems in getting the plant on line, The Facility Group (“TFG”) was hired to do a cost estimate to finish the job. When TFG gave its report as to the estimated cost to finish the project; it also made a proposal for it to take over the job as the Construction Manager, and, who in that capacity, would oversee and supervise both the Carothers construction contract and the Hall equipment contract. According to Sean Carothers, TFG’s proposal was simply to add six million dollars for its fee to the bottom line cost for the job. The six million dollar figure to include $3,548,000 as a lump sum fee; and, an additional guaranteed $2,500,000 for reimbursable costs.

When TFG made its proposal, Sean Carothers asked also to be allowed to make a competing proposal. The MDA and the bank wanted to have a “red meat” specialist involved in the project. For this reason Carothers teamed up with Herndon-Redmond, an Ohio process engineering firm, to make a joint proposal.

The Carothers-Herndon proposal was rejected and TFG’s accepted. When installed as Project Manager, TFG, in effect, became the “boss” over both Carothers Construction and Hall.

On February 24, 2003, TFG made a proposal to Community Bank to: (1) evaluate the construction of the beef plant; and, (2) take the project over as project manager to superintend the remainder of the plant’s design and construction. In late March or early April 03, the defendant, Robert Moultrie, CEO of TFG, contacted Robin Williams, a consultant employed by TFG, and asked him to set up a meeting between Moultrie and the public official2 so that Moultrie could promote his desire to have TFG selected as project manager for the remainder of the beef plant project.

Williams did as instructed and on April 2, 2003, Williams and Moultrie met with the public official. Also at this meeting was the chairman for the public official’s re-election campaign committee. On April 29, 2003, TFG submitted an invoice to the state for payment of Moultrie’s time and travel for the meeting with the public official and the chairman of his re-election campaign.

On April 23, 2003, TFG executed a letter of intent with the Mississippi Land, Water & Timber Resources Board stating the parties intent to negotiate a contract, the object of which was to make TFG Project Manager at the beef plant. On June 13, 2003, the defendants signed an “Appointment Agreement” whereby TFG was made the agent of Mississippi Beef Processors for the purpose of managing the remaining design and construction of the beef plant.

On July 7, 2003, Moultrie send out invitations for a political fund-raiser to be held for the Mississippi public official. In mid-July 03 the defendants instructed TFG employees who had been invited to the political fund-raiser to make out their personal checks each in the amount of $1,000 made payable to the public official’s re-election campaign.

Four days after sending out the invitations, on July 11, 2003, TFG entered into a “Project Management Agreement” with the State Board and the bank financing the project. The contract provided for two forms of compensation for TFG. The first was a lump sum payment of $3,548,000. The second was reimbursement of expenses incurred in the beef plant project, at actual cost, with a minimum reimbursement of $2,500,000 and a maximum reimbursement of $3,021,000. The latter compensation was called “Services Compensation.”

The political fund-raiser was held on July 23, 2003, and TFG employees, as instructed, each gave personal checks in the amount of $1,000 to the public official’s reelection campaign. Later in July Moultrie gave TFG’s Controller a list of the employees who had made “contributions” to the re-election campaign and had the Controller issue TFG checks to reimburse them. The Controller disguised the reimbursements as employee “bonuses” and each check was made in an amount sufficient to allow a net of $1,000 after payroll tax deductions.

On July 29, 2003, Moultrie and TFG also created a PAC. On August 13, 2003, it donated $20,000 to the public official’s re-election campaign and the PAC donated another $25,000 on September 30, 2003.

From August 2003 to March 04, TFG submitted inflated costs for reimbursement on the beef plant project in the form of false labor billings for time not spent on the project. These billings for inflated costs were designed and intended by the defendants to reimburse TFG for both the individual employee political donations and the PAC donations.

Team Carothers gives more detail into the myriad of ways he contends Moultrie and TFG inflated their beef plant billings and ends with this observation on the process used to subpoena Carothers Construction:

This subpoena duces tecum was applied for and issued ex parte with no notice given to Carothers Construction Company, Inc. The weight of authority is however that it is improper for a defendant represented by retained counsel with the financial means to defend himself to have a Rule 17(c) subpoena issued ex parte. An indigent may, however, have one issued ex parte but only upon a showing of “exceptional circumstances” which means that having given the subpoenaed party notice prior to issuance would have: (1) divulged trial strategy, witness list or work-product; (2) imperiled the source or integrity of the subpoenaed evidence; or, (3) undermined a fundamental privacy or constitutional interest of the defendant. United States v. Johnson, 2004 WL 877359 (E.D. La. 2004) citing United States v. Beckford, 964 F. Supp. 1010 (E.D. Va. 1997); United States v. Urlacher, 136 F.R.D. 550 (W.D.N.Y. 1991); and, United States v. Hart, 826 F. Supp. 380 (D. Colo. 1993). If the only need is “that of facilitating preparation of the defense” which “is present in every case,” there is no “extraordinary” need. United States v. Bridges, 2006 WL 3716653 (E.D. Tenn. 2006).

In this case Moultrie is not indigent and made no attempt to allege or show any “exceptional” or “extraordinary” circumstances warranting the ex parte issuance of this subpoena. For this reason alone the subpoena should be quashed.

As we get closer to the trial things look to be heating up. As always we’ll have all the big Beef Plant PACER filings on our USA v Moultrie legal page.

So the ex parte contact b/t Freeland and the judge – is that normal? Surely he’s not accusing the judge and Freeland of the ex parte examples we’ve recently seen?
Your opinion:
1) Sean testifies, but not as an expert?
2) Who plans to fight which subpoena?

Sorry for the simplicity of the questions. I just want to make sure I’m on the same page as this is an important situation to me (and dad)

My understanding HD derives only from the filings. My understanding from reading the latest filings is the rule 17C subpoena can be issued ex parte under certain cricumstances. Carothers is saying those circumstances were not present and they should have been given notice. Carothers called the motion ex parte and it was Freeland who did the motion for the Rule 17C subpoena.

Seems to me Carothers is going to testisfy about events he witnessed (facts) versus as an expert (opinion). The memo of law strongly implies that in any event.

It is Carothers who filed the motion to quash – he says the USA has no standing to file that motion.

Since you mentioned Dad I’ll take the opportunity to publically state I hold him in the highest professional regard and esteem.

I appreciate the kind remarks re: Dad…thank you.
Sean is a longstanding customer, so our interest in this case is high. Dad has some wonderful information I’ve been trying to get him to let me post…but it’s not happening (and I understand that and hope it comes out in court).

Well, Sop, you heated up the blogosphere with this post. I’m certainly anxious to read what Freeland submits as a response – not to mention what the USA files and Mills’ decision.

This was the first time I understood how Moultrie got involved – and I can certainly understand why Carothers is resisting the subpoena. He cooperated with the fact gathering they needed to submit bid to take his contract and ended up behind bars – and now they want to impeach his testimony. He certainly was enough of an “expert” for them to win the bid; so, it seems odd to challenge him now.

What I don’t understand, given the case law cited in the memo, is how the subpoena was ever approved. Even if the government was in a weak position to object, someone is supposed to research the issue before the judge rules.

and, that, brings up a point that’s really been nagging me –
At Scruggs’ sentencing, Judge Biggers made several references to information provided him by the USA. I definitely got the feeling that there was a good big of out-of-court conversation but maybe i missed something on the docket and Scruggs had been represented by counsel in those conversations.

I disagree that Carothers is going to testify to facts. What I read says he is going to testify what in his opinion the overcharges were for engineering and to his interpertation of what constitutes general overheads. It seems to me this puts him out as an expert on contracts.

Everything I have read says Carothers is Construction. The problem is this project was design build. This means you have a design engineering component and a construction component. Each of these componets normally are paid differently. For example, construction contracts have very little overhead costs due to rent. The majority of their work is done in trailers in the field. The cost for these trailers are paid for in general conditions which is identified in the contract. In fact Contractors General overheads may be as low as 5% which is home office expense. The rest of the costs are direct billed as part of general conditions ie. site phone, site power, on-site computers, and printers.

The engineerinig business is completely different.
engineers need an office to work in, computers to use, software for CAD, costs for continuing education etc. These soft costs could be viewed as indirect labor costs. By definition Indirect labor costs is overhead. No engineering company would sign a contract excluing these overhead costs. This could be as much as 30% to 50% of direct labor costs. In addition The engineering business has a second layer of overhead which is called G&A General and Administrative. I would compare this to General Overhead in the contract. This would not be billable.

In summary this is contract is terribly written. I think it could present some problems

Mr Pediddle I partly agree and partly disagree with your last comment. Where we disagree is your concept of indirect labor

An engineering business, like an accountant or a lawyer for that matter have expenses for occupancy, technology needs, continuing ed etc. Those costs are not indirect labor however. The only similariity those costs have to indirect labor is they are costs.

Indirect labor is precisely just that, labor, the wage and hour variety.